Advancers lead decliners by a 17-to-1 ratio on the NYSE Tuesday and 10-to-3 on the NASDAQ. The DOW was up 3.5% with the NASDAQ up 4.2% making it seem like we had a follow-through but volume was lower. Besides, the NASDAQ violated the reversal range intraday on Friday and then again this past Monday. Because of this violation, the count had already reset and Tuesday’s huge gain acts as day 1 for a new rally. I know this can be confusing but it makes sense after you study the rules and then watch it happen over several years.
We can’t call this a follow-through on day 6 for the DOW because trading volume dipped from yesterday’s totals. The count does not reset because we have not violated the intraday low from the reversal day or day 1 of the rally attempt. Leading stocks didn’t do much to lift the market today so it is better off that we didn’t have a suspect follow-through. Rebounding financial stocks lead the market higher, not something we can hang out hats on.
Read up on the CANSLIM rules if you don’t completely follow what I am talking about when it comes to reversals, rallies and follow-throughs.
Past CANSLIM Articles:
The day looked similar in many regards to the prior Tuesday (no new solid leadership). Also, NH/NL’s are still very distressed. Finally, some of the current standing leaders (ferts, etc.) didn’t look that impressive with their price/volume action.
John,
Nice to see you stopping by the blog – I enjoyed your books very much!
Excellent post, but could you explain exactly what you mean above by “Besides, the NASDAQ violated the reversal range intraday on Friday and then again this past Monday.”
I saw O’Neil one time at the traveling IBD presentations he used to do, as I recall he explained it as “the market makes a low and you start counting. If it makes a new low you reset the counter.” Or something to that effect.
http://phils-stock-market-blog.blogspot.com